Why we like this mid-cap fund

By Himanshu Srivastava |  29-09-20 | 
 
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About the Author
Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

Though Vinit Sambre has comanaged DSP Midcap since July 2012, he took its independent charge in July 2015 after its erstwhile manager Apoorva Shah moved to the fund house’s offshore division. Sambre is a competent analyst and the dedicated small/mid-cap specialist with the fund house. He has reasonable portfolio management experience under his belt, too. The fund’s strategy allows him to play to his strengths.

Sambre combines absolute and relative valuation measures when picking stocks in the small/mid-cap space. He scouts for companies that have sustainable competitive advantages over their peers and dominant market shares in their industries. He also tracks company management decisions and meets with company management. He invests only when he is comfortable with the management’s assumptions, forecasts, and capabilities.

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Sambre is valuation-conscious but does not mind paying a premium for a company if it satisfies all of his investment criteria. He looks at quantitative parameters such as ROE, ROCE, P/E and P/BV vis-a-vis the intrinsic growth prospects of the company. He also invests a portion of the portfolio in firms trading well below their book values, which constitute his value picks. Here he looks for companies that are affected by poor market conditions and macroeconomic scenarios rather than deteriorating fundamentals. The topdown approach sometimes is used to increase exposure to sectors that are looking attractive on valuations and future outlook. Given the bias for mid-cap stocks, he adopts a buy-and-hold approach while constructing the portfolio. While the fund is likely to gain more than a typical peer in up markets, it also runs the risk of faring worse in down and momentum-driven markets.

The fund invests in mid-cap stocks, which account for 70%-80% of the portfolio. In fact, the fund’s exposure to mid-caps typically tends to be higher than or in line with the mid-cap Morningstar Category norm. Here, he has the liberty to invest up to 35% of assets in large caps, which he uses to good effect when needed.

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Sambre continues to ply a business-oriented bottom-up approach to scout for good quality stocks. His investment approach is clearly borne out by the portfolio where he invests in companies that have able managements, strong competitive advantages, and leadership positions in the areas they operate. He is cognizant of the risks’ involved in investing in mid-cap segment. Therefore, he factors the same and keeps a buffer in the portfolio by investing only in high-quality companies. The strategy also involves theme-based choices where he scouts for turnaround stories or companies that are capex-oriented and linked to overall economic growth. His investments in the building materials and auto ancillary spaces are a case in point. Here he constructs a relatively more concentrated portfolio and will not shy away from taking big stock-specific bets in his high-conviction picks. The exposure to cash is capped at 7.5%. He believes in constructing a durable portfolio that can last many cycles and deliver performance over three, five, and 10 years.

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